Olympus cuts jobs to recover profit

Olympus the fourth largest camera manufacture plans to cut costs for digital cameras by 30 percent according to a recent Bloomberg report. The workforce will be reduced by 4000 jobs at the end of March 2006 mostly in China. This move by Olympus follows the trend of slightly reduced demand for digital cameras. Olympus announced its first annual loss last month due to lower market prices and lower sales. Olympus hopes to make up the loss with these changes and hopes to maintain at least 10% market share.

Learn more about Olympus from the Bloomberg story below.

Olympus to Cut Digital Camera Costs to Recover Profit (Update4)

June 6 (Bloomberg) -- Olympus Corp., the world's fourth- largest seller of digital cameras, plans to cut production costs for digital cameras by 30 percent or more as it tries to keep pace with falling prices and cooling demand for the devices.

``The cost cuts will have to stay ahead of the expected 15 to 20 percent decline in digital camera prices this year,'' Olympus President Tsuyoshi Kikukawa said in an interview broadcast today.
Olympus, which last month reported its first-ever annual loss, is slashing almost a third of the jobs at its camera unit this year, mostly in China, as part of a 13 billion yen ($121 million) cost-cutting plan. Price declines and market saturation for digital cameras are hurting profit at companies such as Olympus, Pentax Corp. and Fuji Photo Film Co.

``I think they have it wrong,'' said Mitsuhiro Osawa, an analyst at Mizuho Investors Securities Co. who has an ``underperform'' rating on Olympus. ``They should focus on making products that can compete, rather than mapping out how to squeeze costs as the market becomes even more saturated. Otherwise, the cost cuts will be canceled out, leaving no room for profit.''

Olympus may work with contract manufacturers to procure parts so it can boost output while reducing costs, Kikukawa said, without naming potential partners. The Tokyo-based company already buys some cameras from Sanyo Electric Co. to sell under its own brand. It also plans to increase the proportion of parts bought from local makers for production in China, Kikukawa said.

Job Cuts

Olympus, which gets more than a third of its sales from cameras and other visual-related equipment, expects to save about 3 billion yen in the year ending March 2006 by cutting 4,000 jobs at the money-losing unit. The company also plans to reduce camera inventory and close two unprofitable factories in Japan.

``Our priority this year is profit in the digital camera business rather than market share,'' Kikukawa said.

Olympus expects its imaging division to post an operating profit of 2 billion yen in the second half of this year, following a 13 billion yen operating loss in the six months ending Sept. 30. Olympus was overtaken last year by Eastman Kodak Co. as the third- biggest seller of digital cameras in a market led by Canon Inc. and Sony Corp. It had an 11.2 percent global market share, according to IDC.
``We need to maintain at least a 10 percent share to secure gains,'' said Kikukawa, adding that the company will continue to buy about 60 percent of its digital cameras from other companies.

Medical Equipment

Olympus's camera unit last year had an operating loss margin of 8.6 percent, in contrast to a 28.3 percent profit margin at its medical unit, which includes endoscopes. The company expects operating profit from medical equipment to rise 12 percent to 73 billion yen this year as the margin continues to widen. Olympus is the world's biggest maker of endoscopes, devices used to examine internal organs.

``We're looking ahead to developing new products for our medical unit,'' said Kikukawa. The company said in December it developed a capsule-shaped endoscope that can be swallowed with water and is testing the device at medical institutions in the U.S., Europe and Japan.

Olympus expects its digital camera shipments to rise to 9.5 million units this year from 8.9 million last year as it introduces new models, including two SLR, or single-lens reflex, cameras aimed at professional and serious amateur photographers.

The company forecasts 23 billion yen in net income this year, compared with an 11.8 billion loss a year earlier.

Digital camera makers in Japan, home to four of the top five sellers of the devices, are struggling to lift sales in a market where one in every two households own such a product, according to a government report. About a third of U.S. households have digital cameras, compared with about a quarter in Europe, Mizuho Investors' Osawa said.

Slowing Shipments

In Japan, domestic shipments by local companies fell 14.3 percent in April from a year earlier, marking the seventh month of decline, the Tokyo-based Camera & Imaging Products Association said. Exports gained 7.1 percent, as demand continues to rise in other parts of Asia. Domestic shipments are expected to rise 1.8 percent to 8.7 million units this year, slowing from a 29 percent increase in 2002.
Shares of Olympus, which have fallen 3.7 percent this year, were unchanged at 2,105 yen at the 3 p.m. close in Tokyo.

To contact the reporter for this story:
Aiko Wakao in Tokyo at awakao@bloomberg.net.